China economy

By Rafael Halpin, China Confidential

At the start of his premiership, Li Keqiang drew on an ancient Chinese proverb to explain the task ahead. A Chinese warrior, having been bitten by a snake, cuts off his hand in order to save his body. China’s reform process will be “very painful and even feel like cutting one’s wrist”, Li warned.

Pain has certainly been part of 2014 for the Chinese economy. To a large extent, it has been self-inflicted. Measures to deleverage the shadow financing system, for example, led to a sharp slowdown in credit, which in turn contributed to a drop in home sales. This has resulted in slower growth in industrial output, as well as weaker consumer purchases of cars and white goods. Meanwhile, anti-corruption campaigns have hit spending on luxury goods and services and led to delays in the approval of new projects by local officials. Read more

By Andy Rothman, Matthews Asia

After two decades of 10 per cent GDP growth, followed by average growth of over 8 per cent, conventional wisdom is that China is on the verge of collapse. But that wisdom is based largely on many misunderstandings.

Let’s start with the consensus that China’s residential property market is about to replicate the U.S. housing crisis. But China has avoided most of the U.S. traps. For example, homeowner leverage is far lower in China than it was in the U.S. during the run-up to the crisis. By 2006, the National Association of Realtors reported that the median cash down payment for first-time homebuyers in the U.S. was only 2 per cent of the purchase price. In China, the minimum down payment is 30 per cent. Read more

When the IMF announced this year that China’s economy had overtaken the US economy at purchasing power parity, there was some skepticism about the usefulness of PPP calculations and widespread amazement about the speed at which China had made this transformation.

Both themes carry over in a note on Friday from HSBC, which examines the data more closely to conclude that, even after switching variables, the size and importance of the Chinese economy cannot be denied. Read more

By Hayden Briscoe, Shamaila Khan and Jenny Zeng, AllianceBernstein

Based on insights from our team’s recent trip to China, we noted that the country is likely headed for a long economic landing. What does that mean for its infrastructure and commodity sectors? Read more

By Hayden Briscoe, Shamaila Khan and Jenny Zeng, AllianceBernstein

China’s economy isn’t headed for a hard or soft landing — instead, it’s more likely to be a long landing. That’s our perspective, based on our team’s recent visit to China to get an up-close look at the economic landscape.

The country’s economy clearly faces another few years of uncertainty and negative headlines, but we think the risks will be contained as long as the government sticks to its reform agenda. On our China trip, we assessed conditions in important cyclical sectors such as banking, basic industries and property. Read more

By Jonathan Fenby, Trusted Sources

Far from fading away, the anti-corruption campaign launched two years ago by China’s leader, Xi Jinping, is widening and has all the appearance of being seen by Xi and his colleagues as a regular instrument of governance.

It has, of course, involved getting rid of high-profile politicians such as the former security chief, Zhou Yongkang, and the maverick Bo Xilai, along with their associates. But, in keeping with Xi’s declared aim of going for both “flies” and “tigers”, it is also seen by the leadership as a means of cutting lower-level bad apples out of Communist Party.

What is intriguing is the question of whether Xi and his principal enforcer, Discipline Commission chief Wang Qishan, see it as a means of making the state sector more efficient. Read more

Zhou Xiaochan, China's central bank governorClearly, China’s interest rate cut on Friday was motivated by a desire to manage a flagging growth story. But the announcement also revealed a few sub-plots, which together may say more about Beijing’s mindset than the dominant narrative.

The first point, several analysts said, is that Beijing’s monetary easing may well have further to run, following the decision by the People’s Bank of China (PBoC) to cut its benchmark lending rate by 0.4 percentage points to 5.6 per cent, while cutting its deposit rate by 0.25 per cent to 2.75 per cent. Read more

By Xiao Qi, China Confidential

China’s shadow finance sector has become a global concern. The International Monetary Fund (IMF) and World Bank have both warned about the risks associated with the rapid build-up of assets within such an opaque sector, while central bankers now regularly reference Chinese shadow finance as a key potential risk to global economic stability.

But while concern over the lurking horrors in China’s financial shadows remains justified, regulatory actions mean that the systemic risks that they pose are finally starting to ebb. This is happening in spite of the fact that the overall scale of the shadow system is continuing to expand. Read more

Can China innovate its way out of a prolonged economic growth slowdown? Shaun Rein, managing director of the China Market Research Group, believes so. In his new book, “The End of Copycat China – The Rise of Creativity, Innovation and Individualism in Asia”, he argues that China will start innovating now because it has to – and that it didn’t before simply because it didn’t need to. That’s an interesting theory, but is he right?

Rein first does battle with common perceptions that the Chinese political system or culture limits its ability to innovate. It’s not because China is a communist-led country with limited individual freedom, that it does not come up with corporate inventions, he says. Read more

By Louis Kuijs of RBS

China’s economic growth is coming down, trend-wise, but opinions differ widely over how much and how quickly.

In a recent paper, former US Treasury Secretary Larry Summers and his co-author Lant Pritchett argue that, based on global experience, it is more likely for China to “revert to the mean” of 2 per cent GDP growth than to keep growing at relatively high rates.

It makes sense to look at history as a guide to the future. But, what is the right history to look at? Read more

By Jonathan Fenby, Trusted Sources

Reports of the latest Chinese Communist Party Plenum have made much of a drive by the leadership in Beijing to improve “the rule of law”. If that were the case, it would represent a major positive step in the process of change promised by the previous Plenum in November 2013. Establishing a strong, independent legal system is an essential step in enhancing the rights of individuals and providing a level playing field for companies and investors.

Boosting hopes that this may be on the leadership’s agenda, official Chinese media, along with some investment bank analysts and foreign media commentators, have hailed the Plenum as, in the words of one of the former, “a blueprint for the law of law”. This is playing with words. Read more

By Freha Amjad

If you are looking to ride a career helicopter into the rarefied echelons of those who earn more than $250,000 a year – then consider becoming an expat working in Asia.

Such a course is suggested by the findings of the latest HSBC Expat Explorer report, which is based on a YouGov survey of 9,288 expats worldwide. Asia is home to the highest earning expats, who are almost three times more likely to earn over $250,000 a year than their counterparts in Europe. Read more

There may be some light at the end of the tunnel for China’s beleaguered housing market, according to a survey of real estate developers by China Confidential. Home sales growth in October was the highest in 18 months, while a separate survey of urban consumers shows home buying sentiment at a multi-year high.

China Confidential’s monthly survey of 300 real estate developers across 40 cities, showed a sharp rebound in sales volumes in October, with companies reporting the biggest month-on-month increase since March 2013. Developers reported an even larger expansion in sales inquiries, suggesting that many potential home-buyers remain on the side-lines. Read more

By Matt Gamser and Paul Lee

A new wave of financing innovations is democratising access to capital, especially for those most vulnerable among small, medium and micro-enterprises (SMMEs). Are governments and large financial institutions ready to embrace these innovations and enable the necessary regulatory reforms to support the growth of entrepreneurs across Asia?

Raising capital has always been one of the greatest challenges for the growth and sustainability of SMMEs. The International Finance Corporation estimates that the total unmet need for credit by SMMEs globally ranges from US$2.1tn to US$2.5tn. In East Asia alone, the credit gap is a massive US$900bn to US$1.1tn. Read more

Unofficial readings on China’s industrial activity released on Thursday add to a sense that the underlying economic vibrancy of the world’s second largest economy may have continued its ebbing trend into October.

This may surprise those who bought into the notion that industrial output rebounded strongly in September, rising to 8 per cent year on year, up from 6.9 per cent in August. In fact, though, that September “rebound” was largely the result of a big statistical base effect, according to China Confidential research.

Similarly, the announcement on Thursday of a pick up in HSBC/Markit’s manufacturing Purchasing Manager’s Index (PMI) to 50.4 in October so far – up from 50.2 in September – is misleading. In fact, readings on manufacturing output and new orders – the key measures of industrial vibrancy – revealed markedly weaker trends. Read more